Indian IT expanding from software services to apps

Globally, India is recognised as a software powerhouse. But that is only half the story. The aura around the country’s software comes largely from IT services, wherein software products are distant second and a neglected cousin.

But the landscape seem to be changing.

The country’s tech talent pool has set its eyes on conquering the tougher territory in the IT arena — software products. In fact, both the old and the new breed of IT product firms, coupled with budding entrepreneurs (read app developers), are today on a journey to replicate the success story of IT services.

To take an analogy, if software services are like tailoring, and charge labour-based fees for IT projects, software products are akin to mass production of ready made garments, which are driven by large volume sales.

In fact, unlike services, which are licensed software developed for a client firm and involves writing software codes, an IT product requires greater research, patents, brand value — and yield a higher return on capital invested.

Consider this: in 2011-12, Indian IT products garnered an export revenue of around $1.5 billion (R8,090 crore), which rose to $1.6 billion (R8,630 crore) in 2012-13. Various industry estimates suggest that over the next three to five years, the exports of Indian IT product could touch a growth rate as high as 40% to 50%.

"We are heading towards an inflection point from where the IT products growth will be significant," said Vishnu R Dusad, CEO and MD of Nucleus Software, a mid-sized IT firm that derives around 70% revenues from products.

It is not just Dusad: a whole army of freshly minted college graduates, start up firms and even school students are seeking a fortune in the wonder world of apps (application software).

Industry association Nasscom estimates that there are around 3,000 IT products and app firms in India. Naasscom president Som Mittal said that the arrival of new platforms such as smartphones and tablets, social media, Internet-based cloud services and applications, and the proliferation of Internet broadband have fuelled both the demand and ease of making an IT product.

"Earlier products were made only for enterprises but now even the ordinary consumer is a customer," Mittal said. He said the ease of buying and selling a software products has increased, and that has fuelled the aspirations of product firms.

The paradigm has shifted. And a whole army of app developers is raking in the moolah in this changed scenario.

Saurabh Baid is an IT engineer and businessman from Jaipur. He made an office utility app that helps users manage e-mails. Baid said he later sold the app to an Atlanta-based company for $12,000 (he did not disclose the name of the US firm).

India's IT product firms, who are at best mid-sized companies, believe that given their potential, they too can grow big, like their cousins in the services sector.

And that the government should encourage their growth and give them tax breaks on the lines of the software services. "Developing a software product involves investments and research," they argue.

Around 30 such product firms including the likes of Nucleus Software, Tally Solutions, Persistent Systems and Drishti Software, among others recently floated a think tank, iSpirit (Indian Software Product Industry Roundtable). The group is tasked with spelling out with demands that are relevant for product firms.

Both iSpirt and Nasscom insist that iSpirt is not a breakaway faction of the latter, which is the services industry body. The confidence, though, is growing that after India's success in IT services, it is now the turn of IT products. It is no longer a question of 'if'. Just 'when'.